- FX market was mixed this morning as no clear trend emerged during the Asian session
- BoJ sent a warning signal to bond traders, announcing that it was ready to buy an unlimited amount of securities
- In spite of the recent weakness of the yen, the BoJ wants to make sure that speculators stay at a reasonable distance from its currency
- USD/JPY may further strenghten main resistance can be found at around 111.50-112
- The single currency has been consolidating at around 1.07 highlighting the overall sentiment that the EUR selling may have been overdone
- ECB will publish its account regarding the October policy meeting waiting for some hints about the future of the monetary policy after March 2017
- Draghi certainly believes that the Fed rate hike would provide further relief to the single currency and add upside inflation pressures
- We believe that the ECB is too far to stop its QE program now and that removing capital key rule is becoming more likely to improve the scarcity of bonds
The FX market was mixed this morning as no clear trend emerged during the Asian session. The dollar index was treading water at around 100.40 as the greenback lost ground against the SEK, the CAD and the EUR but extended gains against the JPY, the GBP and the CHF. After the sharp rally of the last few days, sovereign yields took a breather on Thursday. The monetary policy sensitive US 2-year yields eased to 0.9932% from 1.0274% in the previous day, while 10-year yields slid below the 2.20% threshold after hitting 2.2950% on Wednesday.
Overnight, the BoJ sent a warning signal to bond traders, announcing that it was ready to buy an unlimited amount of securities. The BoJ’s announcement came on the back of a sell-off in the bonds market that lifted yields to multi-month highs. The Japanese 10-year sovereign yields closed in positive territory for the first time since March this year. In spite of the recent weakness of the yen, the BoJ wants to make sure that speculators stay at a reasonable distance from its currency. Yesterday, USD/JPY hit the highest level since June 1st this year as it tested 109.75. On the upside, the main resistance can be found at around 111.50-112 (multi highs), while on the downside a support lies at around 105.50 (previous high, now support).
After falling more than 3.50% following the US election, the single currency has been consolidating at around 1.07. Overnight, EUR/USD traded sideways at between 1.0680 and 1.0715, highlighting the overall sentiment that the EUR selling may have been overdone. EUR/USD rose 0.23% on Thursday and moved to 1.0715 as the European open.
Asian regional equity returns were mixed on Thursday. The Nikkei closed flat at 17,862, while the broader Topix index rose 0.10%. In China, the Shanghai Composite rose 0.11% while the tech-heavy Shenzhen Composite was off 0.38%. Offshore, the Hang Seng slid 0.32% and the Taiex rose 0.37%. in Europe, equity futures were blinking red across the screen, with the DAX down 0.26%, the CAC off 0.09% and the broad Euro Stoxx 600 falling 0.21%.
Today traders will be watching the unemployment rate from Sweden; retail sales from the UK; CPI from the euro zone; gold and forex reserves from Russia; housing starts, building permits, CPI report, initial jobless claims and Janet Yellen’s speech
Yann Quelenn, market analyst: " Markets expecting ECB hints for 2017”
"This afternoon, the ECB will publish its account regarding the October policy meeting. Markets are still waiting for some hints about the future of the monetary policy after March 2017. However, financial markets have already priced in that the current program should be extended beyond March. ECB President Mario Draghi has refused so far to announce any change as he certainly believes that the Fed rate hike would provide further relief to the single currency and add upside inflation pressures. He certainly wants to be as flexible as possible until the next ECB meeting which will be held in December and which will then be very significant.
For the time being, Eurozone inflation is close to 0% and the asset-purchase program should remain around 80 billion euros per month. But there is one major issue at the moment: markets are quite concerned about the feasibility of such a decision as the scarcity of bonds remains a growing issue. The deposit facility rate is currently at -0.4% and the European institution is obliged to buy bonds yielding less than this level. This is why it would definitely help the ECB by removing this rule. On top of that the QE program also restricts the European institution to buy more than 33% of a country’s debt. We believe that the ECB is too far to stop its QE program now and we believe that this alternative solution is becoming more likely to improve the scarcity of bonds.”